Right Thinking from the Left Coast

Modern Day Javerts

You know why I get irritated when people call Obama a Secret Communist Anti-Colonialist Crypto-Marxist Douchbag? Because if he actually were one, it would almost be preferable. At the very least, we wouldn’t have shit like this:

Richard Eggers doesn’t look like a mastermind of financial crime.

The former farm boy speaks deliberately, can’t remember the last time he got a speeding ticket, and favors suspenders, horn-rimmed glasses and plaid shirts. But the 68-year-old Vietnam veteran is still too risky for Wells Fargo Home Mortgage, which fired him on July 12 from his $29,795-a-year job as a customer service representative.

Egger’s crime? Putting a cardboard cutout of a dime in a washing machine in Carlisle on Feb. 2, 1963.

Now before you start bank bashing … and I’ll bash some banks later on, let’s go into exactly why Wells Fargo fired him for having done a stupid stunt before men landed on the moon. It’s not because they are an evil company.

Big banks have been firing low-level employees like Eggers since the issuance of new federal banking employment guidelines in May 2011 and new mortgage employment guidelines in February.

The tougher standards are meant to weed out executives and mid-level bank employees guilty of transactional crimes, like identity fraud or mortgage fraud, but they are being applied across-the-board thanks to $1-million-a day fines for noncompliance.

Banks have fired thousands of workers nationally because of the rules, said Natasha Buchanan, an attorney with Higbee & Associates in Santa Ana, Calif., who has helped some of the banking workers regain their eligibility to be employed.

“Banks are afraid of the FDIC and the penalties they could face,” Buchanan said.

The regulatory rules forbid the employment of anyone convicted of a crime involving dishonesty, breach of trust or money laundering. Before the guidelines were changed, banks widely interpreted the rules to exclude minor traffic offenses and some other misdemeanor arrests.

New rules have eliminated exceptions for expunged crimes and certain minor offenses and expanded the categories of employees covered, Buchanan said.

Of course, the bank executives — you remember those guys? — the ones who turned the financial system into a cat’s cradle made out of uncooked spaghetti and then came to us with their hands out when it fell apart? Yeah, this not sweeping them up. In fact, Wells Fargo agreed to pay the Feds $175 million to make a high-level investigation go away.

There’s a waiver process for people who have mended their ways — like Eggers, who has not put a fake coin in a laundry machine recently. But the process takes time … unless you’re a high-powered executive. And the banks are prioritizing getting those waivers for … high-powered executives. The FDIC may issue a grand total of 74 waivers this year. They are not going to people like Eggers.

This is not communism. It’s not capitalism either. It’s the Corporate Welfare State, where profits are privatized, losses are socialized, risks are encouraged and the wealthy well-connected bosses are never harmed. When the hammer does come down, for appearance’s sake, it comes on low-level employees and borrowers, not the big bosses or even the medium ones. And both parties are supporting this, as much as the GOP likes to pretend they opposed TARP.

Now about those banks. This is yet one more data point for the case that the big banks have gotten too big and too powerful for the health of our nation and our economy. This is not a case where the free market has created a oligarchic banking system. This is a case where the government, by bailing out big banks and letting them use that money to buy up small banks, has encouraged this; has created this. I have made this argument before. But this is again in the news with Simon Johnson making the case that breaking up the big banks should be part of the GOP platform (if necessary, they can make room by dropping the planks on Shariah law and outlawing abortion without exception). Here is John Carney, quoting the TARP watchdog on the problem. I’ll quote Johnson:

The big opportunity for presumptive Republican presidential nominee Mitt Romney and for conservatives more broadly is to choose this moment to pivot against big banks. Ryan is plugged into the Tea Party wing of the Republican Party, which has been consistently opposed to megabanks and the subsidies they attract through being too-big-to-fail (talk to Representative Ron Paul).

Ryan can draw on the intellectual support of senior figures in the Republican Party — including former Utah Governor Jon Huntsman, the presidential candidate who had the strong support of the Wall Street Journal editorial page for his approach to breaking up the megabanks. Senator Richard Shelby — ranking Republican on the Senate Banking Committee — is cagier, but seems inclined to be skeptical of the value of the largest banks as currently constituted. Two weeks ago, Senator David Vitter co-wrote a brilliant letter to Federal Reserve Chairman Ben S. Bernanke on the problems the banks pose.

In addition to politicians, the emerging consensus among heavyweight Republican intellectuals is that bigger banks should be forced to fund themselves with much more equity relative to debt — in other words, capital requirements should be significantly higher for any financial firm whose failure can cause broad damage. The argument is that too-big-to-fail is too- big-to-exist and the right way to pressure banks to break up is through capital requirements that increase along with a bank’s size.

A Romney-Ryan ticket has the opportunity to tap the Republican populist tradition (think Teddy Roosevelt). The megabanks — such as Bank of America Corp., JPMorgan Chase & Co. (JPM) and Citigroup Inc. — have become today’s government-sponsored enterprises. They receive large, opaque and dangerous subsidies, encouraging them to engage in excessive risk taking. The question is how best to remove those subsidies.

Removing the subsidies isn’t enough. The damage to our political, financial and legal systems is too extensive. I do like the requirement of higher capital requirements, which has some support. But I fear that if we don’t do something about this soon, we’re going to have a much worse situation on our hands.